The Rise of the "Ethical Corporation"

"'Doing well by doing good' has become a fashionable mantra. Businesses have eagerly adopted the jargon of 'embedding' CSR in the core of their operations, making it 'part of the corporate DNA' so that it influences decisions across the company."
- The Economist

February 1, 2008 —

When the first rumblings of Corporate Social Responsibility Movement emerged out in the 1970's, legendary economist Milton Friedman wrote that the only "social responsibility of business is to increase its profits.” Free-market fundamentalists have since been about as resistant to the concept of socially conscious capitalism as Friedman, arguing that any money spent in the pursuit of benevolence amounts to nothing short of a theft from shareholders.

But times are changing, with shareholders and consumers alike now demanding that corporations address issues like global warming, exploitative labor practices, and product safety. Even The Economist — a publication whose political viewpoints usually align perfectly with those of the global business community — has come around to the idea that current business climate demands companies devote their attention and resources toward generating a more positive impact on the communities in which they operate.

A special section in last week's issue is devoted entirely to CSR, and projects a generally positive view of value that good deeds can add value to a business. The economist notes that consumers have been proven to be willing to spend more for ethical products. Businesses also raise their public profiles and minimize the risk and fallout of embarrassing scandals like those that struck Gap, Mattel and Wal-Mart this year.

But is this new CSR-friendly climate a silver bullet capable of ending corporate abuse? Former Labor Secretary Robert Reich certainly doesn't think so, and right now the reality is that many companies' CSR efforts are basically nothing more than sophisticated PR campaigns. Only time will tell whether or not this trend fundamentally transforms the priorities of the business world. For the time being though, it's clear that citizens and consumers play the most important role in keeping corporations honest by rewarding good behavior and punishing the laggards.